IEA and OPEC's Downgrades On Demand Pressure Crude Price

By IBT Staff Reporter On 05/14/09 AT 11:25 AM

Crude oil's decline accelerates as the International Energy Agency (IEA) followed OPEC's suit and reduced its forecast on 2009 oil demand. The benchmark contract plunged almost 2% to 56.8 in European morning.

IEA anticipated global oil demand will drop -3% yoy to 83.2M bpd in 2009 as economic recovery remained uncertain. The estimates were 0.23M bpd lower than the agency's forecast in March. Development economies are responsible for most of the demand contraction (-5.1% yoy) while consumption in developing economies is expected to drop this year, the first time since 1994. IEA also said that crude throughout will remain depressed when compared with 5-year average.

Concerning supply, total OPEC production is revised by 50K bpd while decline in non-OPEC supply will more or less be offset by higher OPEC's natural gas liquids (NGL) production.

Natural gas price traded with great volatility yesterday. Although spiking to 3-month high at 4.575, weak industry report triggered the selloff and price eventually closed 2.7% lower at 4.33. The US Energy Department reported that industrial consumption of gas will drop 8% this year due to economic slowdown. Last today, the Department will release gas storage, which is expected to have gained 99 bcf to 2017 bcf for the week ended May 8, bringing the level more than 20% over 5-year average.

After hitting 6-year low in last April, natural gas price has rebounded sharply. Last week, gas future advanced 22% after surging 5% in the previous week. However, we believe these were driven by improved macroeconomic data as well as rally in the energy complex, rather than shift in fundamentals.

Gold price remains steady at 924. However, rebound in the dollar may trigger profit-taking in gold price. The dollar index rises for the second day to 82.8. Against the euro, the greenback surges to 1.354, the highest in 4 days. In its monthly bulletin, the ECB forecast that inflationary pressure in the Eurozone will continue to ease and negative annual reading will be seen in mid-year. The central bank also said that inflation rate will stay below target of 2% in 2010.

Currently trading at 1104, platinum price (July contract) has been down 2.5% and its trend is obviously worse than gold and silver. After Lonmin's bearish comment on platinum's outlook, Anglo American also expressed it gloomy view on platinum demand. While investment and jewelry demand may lend some support to price, sever erosion in industrial demand, especially in auto sector, will force demand to fall to ever lower level.